为什么链上期权终于在 Derive 上跑通了｜DeFi Frontier

The reason we started Lyra in 2021 was this idea and thesis that we still hold today: the beauty of being on-chain is really the programmability. You have these 24/7 programmable blocks of capital that are global out of the box. Options, on the other hand, are kind of the perfect match for this because you can create any payoff structure, whether it's for speculation, yield generation, or hedging, out of a given combination of calls and puts. The marriage of these 2 environments—where you have capital that's programmable and moving at the speed of information with the most versatile and powerful financial building block—was the motivation to start Lyra in 2021.

I still am a full believer in that thesis. I think I was wrong on the timing. I thought it was all going to happen in the next year or 2 when we started back in 2021, but it's taken a little longer than that. It is still happening, and it's happening right now.

Every year I've been in DeFi, I think literally every year somebody has said that on-chain options are going to be huge. We've been waiting and waiting, and call after call, year after year, it hasn't happened. But we've started to see an inflection point that I think I started to see maybe even in the middle of last year with Derive.

1. Yieldmageddon, the end of the basis trade and TVL deals

Today, we want to talk to you, Nick, all about Derive's recent growth. Are on-chain options finally finding product-market fit? I want to talk to you about options and DeFi yield, because there's something really interesting happening, and you've been writing explicitly about this. I also want to talk about how on-chain options can fit into vaults, what's needed to continue growth in this space, and, for Derive in particular, how you go to the next level.

2. Why Nick bet on onchain options in 2021

Maybe first, let's start a bit with Lyra, because that's what Derive was called before Derive. You started this back in 2021, so you're one of the people making these bets that options were going to be huge. What made you get into it so early, with such conviction, back then?

I was interested in on-chain since 2016. I was an early ETH believer. I was an options trader at Susquehanna from 2018 to 2021, watching DeFi and keeping an eye on it the whole time.

The reason we started Lyra in 2021 was this idea and thesis that we still hold today: the beauty of being on-chain is really the programmability. You have these 24/7 programmable blocks of capital that are global out of the box. Options, on the other hand, are kind of the perfect match for this because you can create any payoff structure, whether it's for speculation, yield generation, or hedging, out of a given combination of calls and puts.

I like to think of them as a Turing-complete financial primitive, in the same way that a computer can be. The marriage of these 2 environments—where you have capital that's programmable and moving at the speed of information with the most versatile and powerful financial building block—was the motivation to start Lyra in 2021. I still am a full believer in that thesis. I think I was wrong on the timing.

I thought it was all going to happen in the next year or 2 when we started back in 2021, but it's taken a little longer than that. It is still happening, and it's happening right now.

3. Derive is the largest onchain options exchange

Before we talk more about what you guys are building, can you just give us the elevator pitch for folks who are new to Derive?

Derive is the largest on-chain options exchange. It's self-custodial. We do 90–95% of the volume in on-chain options. It's an options exchange where you can trade Bitcoin, Ethereum, Hyperliquid, and Solana options on the order book, with an integrated RFQ for big institutional-size and much bigger trades.

You can then trade perpetuals in all of those assets plus a few more, spot, and there's a borrow-lend market. It's really this factory that supports cross-margin and institutional-grade margining across all of these different verticals. They all work together, and you can combine the different positions and financial instruments to build new payoff structures, structured products, and vault-type products—really whatever it is that you want, bucketing into those 3 different categories: generating yield, speculating, and hedging risk.

We built Derive from the ground up to support institutional-level flows, quick traders, integrations, and vaults. Those are the 3 ways that we're really looking to grow this year.

Let's take what you said and apply it to Derive. Deribit is one of the big players in the space, and you had a tweet fairly recently. You said, "The vision for Derive, which a lot of people get wrong, is not just on-chain Deribit. We're building the infinite payoff factory: any payoff on any asset, 24/7."

I love that line. I don't know what it means, though. This idea of an infinite payoff—I think you were just starting to allude to it with what you were saying before. Can you break that down for us a bit, and then explain Derive's place in the space?

At the highest level, it pays to be specific when you're expressing an opinion in the financial markets. You can earn more money if you're correct. If you're targeting a very specific move in Bitcoin by a specific time frame, you can earn more by expressing that view cleanly and saying, "Hey, I think Bitcoin is going to go to $100,000 by the end of April." If you put that on with an option, you get this leverage and this payout structure that, most of the time, gets you the most you could make from that opinion if you're correct and you've nailed the timing.

It pays to be specific if you need a hedge. It pays to be specific if you're generating yield, because you can take more or less risk and scale that up or down based on the opinions that you have about the market and the mandate that you have, whether it's personal risk preferences or whether you're running a fund. You can scale your options risk and try to earn 2% or 1% APY with very little drawdown, all the way up to 30%, 50%, or 100% APY, depending on how risky you want to get.

That is finance. Finance is expressing all of these opinions in this very granular way. If you think about what a perpetual is, it's just a leverage slider with an up-down: How much leverage do I want to take? It's path-dependent, and you could get liquidated. They're great instruments for speculation, but it doesn't really extend too much beyond that.

With Derive, we think we have that level of specificity, and you can express that, again, along those 3 verticals very cleanly: to speculate, to generate yield, and to hedge risk. The great thing about having all of these things cross-margined under 1 roof with efficient portfolio margin is that you can then package all of the different components together and create very specific financial products that can be distributed globally.

So, you know, that's where I think the programmability comes in. You can tokenize not just the basis trade, as in Ethena's case; you can tokenize every single financial strategy under the sun, and there are so many of them. It's what drives the flows in traditional markets. When you're sitting there at my old job behind the desk at SIG, you just see people putting on these crazy positions with opinions: “I think this stock is going to this price at this time. I think this stock has a distribution where half the time it's up 30% and half the time it's down 10%.”

That's financial markets. It's truly expressive, varied, and variable. What we're trying to do is have a liquid venue for anybody to come and tap into, build those payoff structures, and effectively tailor the position that they take to the thesis that they have, which will generate more efficient markets over time.

That's the idea, and we think that if we can be this hub for liquidity for these very difficult-to-manufacture, difficult-to-generate-liquidity-for instruments, we will have a network of global integrators who are out there building. Maybe it's a retail trading interface on top for zero-day options. Maybe it's a structured product on a tokenized equity. Maybe it's an accumulator strategy. Whatever it is, we think the barriers to entry for building those strategies and accessing those financial tools are coming down.

I think they will come down further with AI, and having that level of tailorability is really critical. It's a really fun and useful new blue ocean of a category, because you can't really do that much with the options that you have in your Robinhood brokerage account. But you can when you open up the library to global developers or people who are trying to build their own distribution pipelines.

4. Why not pivot to perps when everyone else did

One of the things about your story, Nick, that I find fascinating is that you've stayed the course building on-chain options. Why did you continue to build options? There are a lot of other distractions that could have drawn you away, like perps.

Yeah, it's a great question. I've been very committed to this underlying thesis that I think the usefulness of options on-chain—and the fact of being on-chain—outweighs most of the other verticals in crypto in terms of the benefit that you get from having them in a programmable environment versus all of the other protocols.

We've always looked at Lyra and Derive as having a very long-term outlook and being a thesis-driven protocol. That's really the conviction. The early conviction around that thesis hasn't waned; it's just taken longer than we would have thought for the market to build up around us.

I feel like with perps, it's a very crowded space. We had no interest in trying to become the 10th or 15th-biggest perp DEX launching a farming program. There are lots of capable teams building that out, and it is a great form factor for leverage. It's an excellent form factor for retail in a lot of different instances, but for us, we see the ultimate prize as much bigger in options in the long term.

It's tested our patience, but we've tried to stick to the principles and the thesis that we were founded on. I think we're seeing signs that that thesis is becoming validated in real time, and that's really encouraging. But it's been tough to survive. The market is littered with graveyards of options protocols that either died from a lack of runway or from pivoting to different verticals.

5. The inflection point: What changed in the last year

Perps is certainly a difficult game, and we think our big edge is in doing this very difficult thing that takes a lot of time and is going to be incredibly difficult to replicate after the fact.

Okay, let's talk about this inflection point that's happened. I'm curious. I've seen a bunch of tweets about these massive numbers being executed on Derive now. It's like $100 million—maybe not every day, but every week there's a big new number. To me, that's validation. Clearly, people are using this in size. What do you think changed for Derive, or do you think it's just been this accumulation of work that's stacked on top of each other for a number of years?

Yeah, it's a bit of both. There are a bunch of things—a lot of small things—that added up to a big change over the last year, year and a half. I would say the first thing was that we made a couple of great hires to the team. One was Hitesh, who used to head product at Tradeparadigm, which is a big RFQ institutional platform feeding into Deribit. He also used to work at Tradeweb, which is a big, very deep traditional finance, deep-tech kind of company that does trading software.

That's kind of upgraded our RFQ, or request-for-quote, mechanism, which is where a lot of the institutional-size trades come through. So, back in October, when Hitesh joined the team, we put a lot more effort into building liquidity and improving the RFQ product so that it would be a feeder for the rest of the liquidity on the exchange.

We put a concerted effort behind that. We did a deal with FalconX in Q3 last year to anchor the liquidity on Derive and really kick-start our ability to sell the product for the first time and say, “Hey, we actually do have a lot of liquidity here.”

Improving that RFQ experience, getting more market makers integrated and in competition, and then launching options on HYPE, Hyperliquid's token, was a big differentiator because you can't get it anywhere else. We had a very liquid two-way market very early, and a lot of people found us through that because the quotes they were getting on Derive were better than those they were getting on OTC desks, where they were locked into a single counterparty and had to give up custody of their tokens to make a trade.

Instead, on Derive, you maintain self-custody. You can hedge it with perps, you can trade in and out, and you can call on 5 to 10 different market makers on the RFQ. That's really been a big part of the shift here: that focus. Then there was word of mouth and people starting to realize that we actually did have a lot more liquidity than met the eye, and that the experience was strictly better than what you could get on a lot of the OTC desks in crypto options.

6. How RFQ (request for quote) works for institutional size

Nick, when you mention RFQ in the design of Derive, can you dumb that down for anyone who's not familiar with the term? How does that work within the protocol?

Yeah. There are 2 different ways of arriving at a price for a trade. The first way is what a lot of users would be familiar with: the order book, where you log on, see this big screen with lots of prices flashing in bids and asks, and you can click “Trade” and take it. That's one way.

The other way is RFQ, where you go into a form and say, “I want to trade 1,000 Bitcoin calls with this strike and this expiry.” I'm going to make that intent known to all of the market makers who are in this liquidity network.

You submit this form with that intent to trade, and then market makers come back to you with a quote for the whole thing. They think about the quote, and it takes 30 seconds to up to 5 minutes, depending on how big it is. This happens in traditional finance, too. Then they flash you a price, and you can click to accept that price, or you go away and don't make the trade.

It's much more suited to these bigger trades that require the market maker on the other side to sit down and think through the risk, figure out how they're going to hedge it, and do all of these things, versus someone coming and doing a small trade on the order book.

7. Building “the infinite payoff factory”

Nick, I want to get into something that really caught my eye last year. You wrote a piece—I think the title alone caught my eye because I write an article called “Yields of the Week.” You wrote an article called “Yieldmageddon,” and I thought, “I should pay attention to this.” You basically called out that a lot of the DeFi yield may or may not last, and you offered a solution for what could potentially take its place or emerge.

I want you to get into that because I think options and DeFi yield look to be interwoven going forward. Can you start to break down the opportunity here that lies at the intersection of options and DeFi yield?

Totally. The thrust of Yieldmageddon was that massive parts of the crypto industry, particularly from 2021 to 2025, were built on yields from a couple of different sources. One was the basis trade. You could earn, without any leverage, 10% to 30%—with leverage, much higher than that—on a delta-neutral, very low financial-risk trade.

That's an extremely attractive proposition, which is why, when Ethena tokenized it and it became well known, it took a couple of years for that yield to really get crushed—from 2024 through to the end of 2025—as so many people entered that trade that it became crowded. It pushed the trade back in line, and that yield got compressed down to what is now effectively the risk-free rate, or close to it, with a small premium.

The second was—you know, we're very familiar with this, as we get pitched this a lot of the time—there are all these teams in crypto that do TVL deals. How it works is, you have big funds that come in with $10 million to $100 million and say, “We'll put $50 million toward your protocol, into this yield-generating product where we can't lose money. It has to be almost riskless for us. So, it's a lending product or something. In return, we'll get some of your token when it launches.”

They can then hedge that token exposure with pre-market perps, or with Pendle points, doing the fixed-rate stuff. That was dominating for a lot of 2024 and 2025. You had these funds that were very used to 30%, 40%, 50%, if not better, depending on how these tokens did, because a lot of tokens were debuting with massive valuations.

Once 10/10 happened, one, it was kind of the final nail in the coffin for the basis trade. Two, all the valuations for alts collapsed, which effectively made that business model a lot less attractive than it once was. The effect of those 2 dynamics, and those 2 trades being so prolific in the industry, is that selling an option, taking on financial risk, and earning 15% APY becomes very unattractive. It makes it kind of dead on arrival as a product.

At the same time, there's a reason options are so big in traditional finance, particularly for yield generation: that is how yield gets generated in a bespoke way at institutional scale in a mature market. TradFi didn't have those TVL deal opportunities. They don't exist because the market has matured to a point where things are valued relatively correctly. I would argue that a lot of the pre-launch token stuff wasn't valued correctly for a good period of time.

The ending of that regime has made options a lot more competitive. We're seeing a lot of demand from these funds that were built around mandates promising 15% to 20% APY and now need to turn to options to manage, sell, and generate yield using volatility. That is certainly where some of this demand is coming from, because you can no longer rely on those old sources of yield.

Options are evergreen. You generate the yield by harvesting the volatility inherent in every asset. We think that as the market continues to mature and grow, there's going to be this structural tailwind for demand for options. It also makes the other side of the equation more attractive, because when people come in to sell options for yield, it drives the prices of options lower, which makes it better for people who want to take directional views or speculate.

8. Vaults and structured products being built on Derive

We've been covering DeFi vaults quite a bit on the podcast. When I think about Derive, I think that if we can wrap up all that complexity in a vault and have one-click options for exposure to trading options—pun intended—that's the kind of product I think is going to go viral. What types of vaults or structured products are you seeing built on top of Derive? Are there any partners you can call out that are building these types of vaults?

We have one in stealth, and they're one of the larger neobanks in crypto. Their DeFi arm is building a very cool product where you deposit Bitcoin. It can work with any of the options markets we have, but you deposit Bitcoin, it sells a call with that Bitcoin, and then it buys a put with that Bitcoin with the same expiry.

The call is worth more than the put. What that means is that you have your Bitcoin, you cap your upside, you lock in your downside, and you generate 5% to 10% per year on your Bitcoin by capturing the difference in the options prices. It's kind of like saying, “I'm committing to selling my Bitcoin at $85,000. I'm protected if Bitcoin drops below $60,000, and in the meantime, I'm just chilling and earning 10% on my Bitcoin.”

They're going to distribute that to their users. We're kind of the only exchange that can support those sorts of flows, so we're pretty excited to see that one go live. That's one of a few examples of structured products.

We're actually re-architecting our stack right now. I can't go into too much detail, but we're re-architecting it to make the deployment of those sorts of vaults way easier—to the point where, to your point about one click, people could actually deploy and build these strategies with one click, as opposed to right now, where it takes a few weeks of integration.

9. Is there an LP pool-style product being built for Derive?

Anytime we look at the perpetual trading platforms, like Hyperliquid or Lighter, one of the products that is very popular for people who aren't wanting to trade is taking the other side and making the assumption that traders could and will lose money over time. They get into one of the LP pools. Is there an equivalent to that with Derive? Do we need to wait for one of these vaults to go live? Is there any sort of yield-earning option if we're not comfortable buying and selling options on Derive?

Not yet. But I can tell you that I would be surprised if it didn't exist within the next few months, particularly with this upgrade that we're working on. Those are exactly the sorts of flows you want to support more natively. Right now, the protocol isn't architected to support those flows very well, and that will be changing.

10. From Lyra's AMM to Derive's CLOB

Can you try to dumb down for us why you moved to a CLOB model? Again, if you can help folks understand what that means, why does the protocol use a CLOB versus an AMM?

Sure. We used to have an AMM for about 1½ to 2 years. The reason we did an AMM in the first place was that, if you remember back to 2021, it would cost around $1,000 per trade if you wanted to make a trade with a lot of the financial logic required to backstop a CLOB on Ethereum mainnet. So we built and launched natively on Optimism.

The problem with the AMM for options wasn't that it lost money, which surprises a lot of people. We actually had an AMM that made 8% on the Ethereum market over a year during the time FTX happened. The problem was that it just didn't scale very well. It's very hard to support the institutional sizes that really drive and dominate options markets.

All of the logic for margining and things like that is very complicated. It's difficult to have pricing, margining, and everything else needed for an options market baked into a set of immutable smart contracts that you just have to push out there and hope works. Given all that, it's kind of miraculous that it made money in the first place, but we were limited in how large we could make the protocol.

We ended up shifting to a model in which all of the critical financial logic and custody live on-chain. Think of the margining system in industry-grade portfolio margin, which is what's used in traditional finance to get a lot of capital efficiency out of options and perps. It looks at all of your positions, as well as liquidations, and the collateral in the system is all held within the newer version of the protocol.

We've separated that from the order-matching component, i.e., how people agree on a price. That's where the CLOB comes in. It's the traditional TradFi architecture that really works at scale because it's the instantiation of price discovery and the best way to do that: having lots of people with super-low latency submitting bids and asks and finding a price match.

Once they find a price match, it gets sent through to the protocol to lock the funds into the margining system and dictate how funds flow between different accounts based on price action. That is the architecture. It's a lot more modular and flexible, and we can add different risk modules that plug into the protocol and do different things.

11. What options markets are live today?

It also means we can have multiple ways of matching. There's the order book that exists currently, and there's the RFQ, which is a separate way of matching traders and committing to the same protocol. Other people can come and build front ends on top of us and facilitate matching that way, too. That's certainly something we're trying to build out over the next couple of years.

Nick, I had a question about RWAs and Derive queued up, but I realized we haven't even really explained what's live on the platform today. What can people actually trade options on right now?

You can trade Bitcoin, ETH, HYPE, and Solana options at the moment. Those 4 are available in perpetuals, plus a wider variety—I think it was 10 other altcoins—on the perps.

There is some spot trading, although there isn't as much liquidity behind those markets, so I wouldn't point users to them in the short term. We're working on it, but really, it's the options markets that we're focused on.

There's a wide range of things you can do within those markets. They have expirations out to, I think, September, potentially the end of this year, as well as zero- and 1-day expirations and everything in between.

12. Which networks Derive supports via its appchain

And then, Nick, remind us what network or networks you’re trading on when you use Derive?

The protocol runs on the Derive appchain. It’s an OP Stack-based EVM appchain, and then we have native bridges—or bridges through to pretty much wherever there are traders. We have one on Hyperliquid, so you can deposit on Hyperliquid, and you can deposit on Solana now; that’s new. You can also deposit on Base or on Ethereum L1.

The model that we’ve taken with the appchain is very much that we’ll do what we do best, which is build a protocol for manufacturing complicated derivatives like options, and then export them and the liquidity to wherever it’s needed and where the traders are. That’s opposed to the approach some teams take: “Hey, we’re just going to do all of finance on our chain.”

And I guess, of those 4 offerings, where do you see the most action or volume? Where is the most meaningful participation coming from between Bitcoin, ETH, SOL, and HYPE?

Bitcoin is the biggest, probably 50–60%. SOL we only just launched this week, so it’s small but growing. Of the remainder, ETH and HYPE are actually quite similar now—probably 20% each. HYPE has been very active, and we’re the most liquid venue anywhere in the world for HYPE options.

13. HYPE options driving new growth

Nick, what are some of the more recent volumes that you’ve seen trading? What have we seen here in the month of March?

We’ve seen a fair bit of HYPE volatility selling. A lot of people are trying to take advantage of volatility essentially being much higher than ETH and Bitcoin, and therefore being able to generate more yield and more premiums relative to the other majors in the space.

We’ve also seen big Bitcoin bets, particularly betting on a rally to $80K. Some of our biggest trades have reflected that sort of payoff structure and been tailored to try and profit maximally at $80K Bitcoin.

It really does vary, though. We’ve seen some downside hedging, particularly in ETH. We’ve actually seen a lot of downside hedging past $2K over the last couple of days, so people are really taking those positions.

It’s no longer as correlated as it was a year ago. A year ago, people would make the exact same bets in ETH and Bitcoin. Obviously, we didn’t have HYPE, but everything was much more correlated in the crypto market. Now it seems like assets are moving and being priced independently.

14. What if Hyperliquid launched options?

Nick, speaking of Hyperliquid, I want to ask you a bit about them as a potential competitor. I think HIP-4 may be the improvement proposal where they’re looking to get into options and decision markets as well. What’s your view on a competitor like that entering the space, even though you’ve maintained a last-man-standing position in the space and there have been a lot of competitors that came before?

HIP-4 is not at all the same product as what we’re offering. It’s binary options, which are much closer to what you’re seeing in prediction markets, resolving into a yes-or-no outcome, as opposed to the nonlinear, second-order derivative effects—like the gamma—that options give you in the way that we trade them.

I’ll say this: there might be HIP-5 on the horizon. We don’t know. We’d look to get integrated if there were a way to tap into some of that liquidity on the chain and use the perp liquidity. As I said, we’re focused on building options and building those products. We’re not focused on trying to be the biggest perp exchange.

Having said that, it would be really difficult for even Hyperliquid to change their risk engine to maintain the performance they need in the hypercompetitive perp market while accommodating good margining for options. They would probably have to sacrifice some of the leverage that they give to perp traders, which is a very big trade-off to make when they’re in a hypercompetitive perps market and make so much money on perps.

At the same time, options require a level of dedication and work that would probably require 40% of their headcount and time for an uncertain amount of revenue. That’s why it’s very difficult for a team that isn’t fully dedicated to options to win, which is what we saw with Binance versus Deribit.

Despite having an order of magnitude less liquidity in the perpetuals, an order of magnitude less funding than Binance, and Binance throwing a lot of resources at its options product, Binance didn’t manage to take almost any market share from Deribit because it’s just difficult. It requires that focus. The liquidity network effects are really strong, and it’s resource-intensive. There’s also a bit of game theory around how much of your focus and your team you give up to take away from your main product.

Maybe they eventually do change their risk engine, and other teams can build on it and then use the perp liquidity across margin with the options, which is pretty much the big piece that needs to be solved. If that happens, we’d love to know because, as I said, we’d love to figure out a way that we can tap into that perp liquidity and build more native options-type products on top.

15. Why options markets have stronger network effects

I think we were looking at a tweet of yours in preparation for the podcast, and it was something to the effect that options markets can be really sticky. You were talking about the network effects you just mentioned. Why do they have such strong network effects? I think you alluded to the network effects around options markets being stronger than perps or lending. Make that make sense for us.

The first thing I’ll say, more intuitively, is that options have longer durations. People take positions 1 month out, 3 months out, or 6 months out. Whenever you make a trade like that and a market maker takes the other side, you then have capital committed to that exchange for that duration.

For a market maker, they have to keep that capital on the exchange, so they’re now going to quote tighter around that position to either try to hedge that position or trade out of it. Either way, the cost of capital for them on another exchange where they have no positions goes up, and they’re going to quote less competitively on that exchange because it’s much better for them if they can hedge and reduce risk on the first exchange and free up more margin there. You have this innate, long-term duration stickiness that doesn’t exist in these other instruments, where with perps, you can close anytime.

You then have a class of users who anchor those markets who are more institutional and much slower-moving. People who are trying to generate yield don’t care at all about points-farming programs or token incentives. They care about longevity, security, and quality of execution, and they’re not going to move for a marginal improvement or a small token deal because there’s too much risk at institutional size.

They’re much slower-moving, and it takes long, grinding BD work, brand awareness, and trust for people to get over the line. That’s a very different game from what we’ve seen emerge in perps. I think that stickiness is extremely real.

The other cool thing about options is that there’s a natural equilibrium in the long term between us, Derive, as an options back end, and anyone who wants to build a business on top of Derive—for example, distributing or manufacturing structured products, or building a retail interface. It’s really difficult to build an options exchange. It takes a ton of know-how and knowledge to build the risk systems and onboard the liquidity and takers, and it takes years.

16. Growth charts: From 0.15% to significant market share

For most teams, it’s just not going to be worth that effort compared with taking a Derive option, repackaging it, charging a fee themselves, and continuing from there. Those are the kinds of integrators with whom we think we can reach a very natural, win-win equilibrium over the long term.

In the same way that you often hear people say, “You have to own the end user,” I don’t think that’s true here because of how difficult it is and how sticky that liquidity network effect is.

17. Will Derive support RWA options markets?

Each one of those integrators, again, adds another node that’s making trades and tying up capital on the exchange, making it much more difficult for someone to migrate off of. That positioning is also another part of the reason we’ve been so dedicated to options, because I’ve been aware of that effect the entire time, and it’s been critical to maintain that posture so we can attract the market makers and liquidity that we need to.

One of the breakthroughs for perps trading on-chain, I think, has been RWAs being listed. People get excited about being able to trade gold, silver, and now oil. What RWAs might we see listed on Derive, or what markets might support RWAs on Derive?

Yeah, we’re very interested in RWAs. I actually think sometimes people question things like tokenized equities, commodities, and FX. Those are all categories we’re extremely interested in and actively looking into.

I would say the thing that a lot of people ask about tokenized equities is, “What’s the point? What do you get out of tokenizing an equity versus just trading it in your brokerage account?” I think that’s a fair question. The first-order answer to that is, “Well, 24/7 trading.” You can see that with Hyperliquid today, and that’s why it’s having a lot of traction.

I don’t think that’s enough in the long term because traditional markets are going to adopt 24/7 trading. That’s clearly happening in real time. The second thing that you can do is borrow and lend against them. I think that’s a big unlock, right? You can post your tokenized Tesla stock and borrow some money if you need to fund whatever, make another trade, or do whatever it is you need to do.

I do think that’s an unlock. I don’t think it’s a paradigm shift. I think it’s a useful, practical unlock with tokenized equities. I think our stack is actually kind of like a blue-ocean wrapper for a lot of the tokenized RWAs that are going to come on-chain.

As I said, you can imbue every useful asset that gets listed on Derive with the full suite of financial functionality, from borrow and lend to perps trading to very bespoke, tailored structured products, speculative products, or whatever it is. We have it all in the same shared risk engine and risk universe.

I’m really, really excited about liquid RWA options, because you can imagine what Ethena did for the basis trade. They tokenized the basis trade; that was the whole product. We can do tokenized structured products for every single RWA.

These strategies are already very popular in traditional finance, albeit with huge markups and massive amounts of red tape to get through. It often goes through structured product desks at investment banks.

For us, I’m imagining a world where, in 6 months, with our new, upgraded infrastructure for deploying vaults and strategies, we will have all of these assets and a ton of integrators who can deploy one-click vaults, strategies, and structured products on top of all of the most useful assets in finance.

I think that’s a huge unlock relative to what you can do with those assets in a traditional brokerage account, and I think it unlocks a whole new level of distribution beyond just the crypto-native market.

That was actually one of my questions: maybe what you’re waiting for this to happen, because you mentioned that there’s an update coming. Will that allow you to bring RWAs onto your platform, or is it that you’re not comfortable with some of the RWAs out there, the custody of them, how the oracles work, or what have you?

Then, I guess I’m throwing too many questions at you, but I’m curious if we’ll get a situation kind of like Hyperliquid with HIP-3, where there can be multiple issuers of, say, a commodity or something. Could we have 3 different versions of gold or 3 different versions of oil potentially traded on Derive? Is that kind of what the future will look like, or will it be more that you guys might control it a little tighter?

Yeah, the listing of the underlying liquidity and the options liquidity for each of these markets will be important. We need to maintain very high-quality collateral for all of these different assets.

I would say our approach to this is that we don’t have to be the quickest to market on this, but we know that if we get it right—lining up the right liquidity and having the right go-to-market strategy for all these markets—is far more important than pushing out something half-baked.

We’re taking the time to really get that right and line up the liquidity. The new version will help immediately get traction and help our go-to-market with respect to deploying those vaults.

It’s something where we’re going to do it once, and we’re going to do it really well. That’s more of the blocker and what we’re working through at the moment: ensuring that we have all of the problems that you just described solved as well as they possibly could be before we take something like that to market.

At the same time, we’re seeing a lot of growth on the crypto-native side, and we want to make sure that we have our eye on the ball there and can continue to grow our market share relative to the big centralized players in the space.

18. Who trades on Derive?

Even though the platform is permissionless, I’m imagining you’re in touch with some of your bigger users. Who do you think your users are today, or who do you know are your users today? What’s the profile, and how is that changing or evolving?

It’s always been a mix of very individual whales who know what they’re doing trading options, and also liquid funds and hedge funds. It’s skewed a lot more in the last few months toward sophisticated liquid funds and hedge funds that are active in the OTC options market but are now seeing that they can maintain custody with Derive, which is important.

There have been a few high-profile cases of OTC desks in very reputable jurisdictions, even in the US, essentially going bankrupt and losing customer funds as recently as last week. The value proposition of Derive—being self-custodial and offering best execution on the market—is really starting to cut through among that clientele.

That’s who we’re seeing a lot of the growth from in the last few months: these funds that have found us one way or the other through our reputation. They now know we can execute size. Maybe it’s through our high-volume markets, and then they’ve onboarded, tried a few trades, and scaled out their operations as they realized it’s an experience they like.

It’s them, plus we’re working on integrations and making sure that people can build their financial products on top of Derive. We’re not really focused on trying to attract a ton of click traders at the moment.

As I said, I think our long-term strategy for that very much revolves around others building those distribution pipelines, monetizing, and tailoring their offerings to different subsets of users. We’re focused on building the liquidity network, and I think there’s a very healthy equilibrium that emerges between us and integrators in the long term.

Nick, something you were describing there was your users, who have really boosted your growth over the last few months. We just pulled up this chart, and you can literally see it in the chart. The whole chart is up and to the right, but specifically in March, something’s really happening on the growth side.

Maybe explain some of the charts that we’re looking at here. I see notional volume and fees. Can you walk us through this a little bit?

Yeah. Notional volume is kind of like this: a 1-Bitcoin contract is roughly the price of Bitcoin, so that would be $70,000 in notional volume.

We’ve had this growth from a concerted effort in November, when we started focusing on the RFQ. We were about 0.15% of Deribit’s daily volume in November. Again, we’ve actually reduced incentives to almost a de minimis amount in terms of taker incentives since November, and the market’s down. Bitcoin is down from $100,000–$110,000 to $70,000, Ethereum is down a little bit more, and we’ve seen this growth in the total notional volume.

In March so far, it’s been almost $2 billion with 2 weeks to go, and that has been really encouraging. It’s been this process of people discovering us, putting on some test trades in January and February, realizing that they’re getting better execution and a better experience than they might have expected, and telling other people about it.

That brings on more market makers because they want to quote against the taker flow that we’re seeing. That reinforces itself because it makes it an even better and more attractive venue to come and try to make a trade on.

I think that’s what we’re seeing a little bit in March: more word of mouth is getting out there.

We've printed a few more notional-heavy trades, and you can look at the fees as well if you scroll down. The fees are kind of the fundamental way of measuring, because notional can get out of whack sometimes with options, although it's a good general indicator relative to our past performance. But the fees have also been really encouraging during this market downturn, and that's again just a function of these power users who are onboarding. We're taking market share away from stuff that would have traded primarily OTC, not on any exchange.

It's been a great period, but we have a lot more work to do. We're planning on capitalizing on this momentum as best as we can.

19. Why options are countercyclical

Something that you mentioned in there, Nick, is that the performance of your platform is up even with Bitcoin crashing in price. What stood out to me is that this is the type of protocol that can be good in all seasons, right? It's a venue you can trade on whether Bitcoin's up, down, or sideways. Maybe speak to that nature too, because I feel like so many businesses in crypto are narrative-driven or sort of go through cycles. Can you break that down a bit, too?

Options are a very countercyclical product. As you mentioned, you can profitably trade them in any market environment, whereas that's not really true in perps in a chop market unless you're perfectly calling tops and bottoms, which is very hard to do. With options, you can generate yield in all seasons, and people have mandates to do that. Particularly when the market crashes, hedges become more in demand and people reposition, so it is countercyclical in a lot of ways.

The main thing that benefits options is volatility in the market. Volatility is helpful as long as the bottom doesn't completely fall out, because you want the industry to keep going and participants to keep having funds and resources. There's a limit to how low the market can go, but in general, volatility is really good for this sort of activity that we're seeing.

It's more countercyclical versus even a perp. As I said, you can't really win if you're sitting there paying, whether you're long or short, crossing spreads and paying funding. There's no way to win if the market doesn't do anything. That's not true with options. You can win in any market condition—not to say that it's easy to win—but as long as it aligns with your mandate, there's no reason to stop trading just because the market is a certain way.

20. DRV token: All value flows through the token

I want to talk a bit about the Derive token. We recently had Felipe from Thea on, and we talked about Derive. He was talking about tokenholder rights, and we went deep into that. I think Derive is a good example of a team that's putting tokenholder rights first and foremost. Maybe, if we can, we could play that clip from Felipe. That would be cool to weave into this, if we have it.

Felipe

Derive was formerly Lyra, the options protocol. Nick Forster is the CEO there. He's been at this for 5 years, and he's had every opportunity in the world to sell his tokens that have been unlocked for long periods of time and quit, or to sell the business to people who want to pay him cash and rug the token, or to give up because it wasn't an easy path to wealth like he thought it would be.

This is somebody who traded options at SIG, right? This is somebody who has a very high opportunity cost. But because he is an honest, long-term builder, he's gone through that entire period and is now having a moment where he's finding true product-market fit after the Coinbase-Deribit acquisition for on-chain options.

Maybe speak to us about the DRV token. Again, as far as I know, all the value flows through that. There's no other equity component. Just speak to the DRV token a bit.

Yeah, totally. We've been going for 5 years. We've never—the core team or core contributors, myself included—raised any money into an equity entity. It was important to us, given the conversations we'd had, because the vision is to build this network of liquidity for programmable finance, effectively. That network is really important to have real ownership, to be distributed, and to have governance that's monitorable and global. That was important to us when we launched the token back in December 2021. It's still the same token today.

We've had to do some difficult things over the years, like things people might not like. Back when we were struggling a year ago and things were a lot different, we had to mint some more supply to continue to incentivize team members who had rolled off their 4-year vesting schedules, or to onboard and make new liquidity deals. I hope our tokenholders now, looking back on where we've come since then, appreciate that. They were supportive at the time, but that's kind of the cost of having this alignment: sometimes you have to make difficult trade-offs.

We've always had a community that's been very long-term-focused and very much focused on the vision, and we've managed to attract those people to the Derive community. The token itself is very much tokenholder-owned. We have alignment within the community as to the instrument and the way governance has functioned to date.

Currently, of the fees that are generated by the protocol, governance has voted that 25% of them are used to buy back DRV itself, and 75% is going to the on-chain insurance fund, which backstops the protocol and provides an extra buffer of liquidity and solvency to the architecture of the protocol.

But really, it's as simple as that. For us, trying to build a global network of liquidity and integrators to tap into what is the most expressive and programmable financial instrument, we really need that level of global access, governance, and transparency that's associated with having a token and a governance token like Derive's. That's been important to us from day 1. Being aligned has been important to us from day 1.

It's very, very easy in crypto for people to try and tear you away from that, but again, our singular focus is on the big picture, the extreme long-term outcome. It's why we've been consistent with our thesis and our structure for 5 years, and it's really what we're going to continue to do.

21. The story behind Synthetix’s acquisition proposal

I think you referenced this, but what can you recall from Synthetix nearly acquiring the protocol and bringing you back in-house? I thought Lyra originally spun out of Synthetix, and then I think it was just last spring that you guys almost went back in-house. What were the details around that? I think it's a remarkable story, considering the success that you're having today.

Yeah. We never were a spin-off of Synthetix, actually. We were adjacent, because I started it, Kain was an early backer, and I started it with my co-founder, who's still here, Dom. He was an early contributor at Synthetix, and Mike as well, who's no longer active on the team as of a couple of years ago. He was a contributor at Synthetix, too. So, we had ties to that community, and we were dealing with them.

They realized—I think correctly—in April last year that we had this amazing tech stack, particularly the order book we'd built, the protocol, and just how advanced it was. At the time, we were very small. The token had a total market cap of $15 or $20 million. From their perspective, they were trading much higher, so they saw it as an opportunity: “Hey, we're trading much higher, and we can just acquire this technology and these guys.”

Fortunately, it didn't happen. Our community was very much against that. There was a lot of discussion. Again, just another real example of DAO governance at work, because obviously that proposal needs to get surfaced. It's a material, big proposal. It's up to governance to decide what to do about it.

We were able to use that renewed energy and enthusiasm to reset the culture around Derive once that went down, because no one wanted to actually go through with that and sell. The community rallied around us a little bit. That gave us the impetus to make the fundamental changes we really needed to make around minting the new tokens and having the support from the community to do that, to get core contributors realigned for another 4 years, and to get a budget for new liquidity deals. That really set the seeds for the growth that we've seen in the last 6 months.

22. How big can Derive grow in options trading?

That all happened from really reworking the incentives from the ground up with the community support off the back of that failed proposal, which was honestly one of the best things that could have happened to us.

I want to zoom out a bit and get an idea of how big this market could be. I don't know if you're one of those people who thinks all options will come on-chain, like when people say all of finance will come on-chain. But, say, what is the size of the options market today?

What I want to quantify is, if Derive continues to be successful, how big of a piece of that could you take? What does that look like numbers-wise? Maybe it's volume. I'm just trying to paint a picture of the upside here, essentially.

Honestly, it's so difficult to quantify this because so much of the options market—about half of it, in my estimation—is on exchanges and on screens in traditional finance. Then there's a whole other shadow options market that happens bilaterally. There are massive prints.

That structure is also true in the crypto market. There's a lot of activity in the market we're going after where you have no idea how big it is. You just know it's huge because it flows into the exchanges as the market makers on the other side of those trades hedge against each other, which is a lot of the activity on Deribit, for example.

I would guess that the options market—the notional value—is in the quadrillions every year in traditional finance. I have no idea. I really don't know how much money these desks make. I know there are plenty of desks globally that make upwards of billions of dollars in trading themselves. I think it's easily a massive financial market.

I think the thing that excites me about our journey and how we're positioned is that I really do think the kinds of products that can be built on top of the network and the stack we're building are differentiated and strictly better when you have an option that's on-chain, programmable, and can be recombined, repackaged globally, and tailored.

That's true in a global, 24/7 financial-rails environment. It's also especially true in an agentic-finance environment, which we haven't really talked about. The biggest barrier to entry for options, even at the top levels of TradFi, is understanding. That's why there are structured-products desks educating hedge funds about how to express an opinion they have through options.

That won't be a problem for agents because they can understand how to put together a structure. All of this stuff comes out of the box. So, if we're providing the building blocks and an easy entryway into agentic finance, on top of all the other benefits of having integrators come and hyper-tailor all of their products and offerings to their local jurisdiction, local users, or clients, I think this is just a huge TAM expansion versus the traditional markets by being on-chain.

23. What's next?

That is such a great point about solving for complexity with AI agents on-chain, and we've talked a lot about that in terms of solving for user issues, UI-type issues for users. Any other thoughts to share on the work you're doing around Derive as it pertains to AI agents?

You make a great point, and I definitely want to give you space to talk about any other plans you guys might have in terms of growing the pie for Derive through the lens of AI agents.

Yeah, it's pretty simple, actually. This upgrade I've been alluding to—the stack—we're aiming to be the most integratable exchange in the world. That's from the perspective of ease of integration: low time to integrate and build something useful. It's also from the perspective of the kind of stuff you can do with the building blocks we're churning out.

Part of that is making it very accessible for agents. I can't really give specifics because, honestly, I have no idea how this landscape is going to evolve in the next year or 2. I would say most agents probably aren't ready to do complicated finance and take the wheel on a lot of these things, but I would seriously wager that it's coming at some point in the next year or 2.

24. Closing

Being positioned for that by making it very accessible—having a self-custodial, verifiable margin framework in real time, with a huge factory of financial Legos to play with—is going to be a very useful position to take in the market.

Nick, thank you so much for your time. This was such a pleasure. We would love to have you back in the future, and I want to give you the final word before you go.

Thank you guys so much for having me on. I've been following along for years and years now, and it's been really, really fun to chat. I've very much enjoyed it. I appreciate your support, and it's great to finally get on. I'm looking forward to more in the future.